The State of Stem Cell Research

Flocking to California in hopes of striking gold has been the way of the entrepreneur since at least 1849, no matter how speculative the industry. Modern-day prospectors are again looking to the state with wide eyes, but this time the focus is not on nuggets or dot-coms or movie cameras. Today, stem cell research is the center of attention, with the state betting $3 billion of taxpayer money (funded by bonds) that it will fuel the economy. "Every hundred years there are one or two major turning points in science akin to the discovery of penicillin, and stem cells is one of them, " says Hans Keirstead, head of the Reeve-Irvine Research Center at the University of California at Irvine.

Of course, all scientific research is speculative. Stanford biology professor William Hurlbut, who sits on President Bush's Council on Bioethics, cautions that our knowledge of stem cells "is not even in infancy. It's in its embryology stage." But that doesn't necessarily mean that California is taking a risky gamble. The state stands to win big even if the research never results in a paraplegic rising out of his wheelchair, as some, like John Edwards, have suggested.

At the most basic level, stem cells are primitive cells that are undifferentiated and aren't programmed to become a certain type, such as a blood or brain cell. In theory, scientists will coax stem cells into adapting to whatever they need to replace damaged or diseased cells in humans.

Of course, this is not without controversy. Scientists get cells from blastocysts that have been discarded from fertility clinics. Critics contend that this is tantamount to the taking of a human life. In 2001, President Bush signed an executive order banning research on embryonic stem cells except for those that were already in use.

That's when California began to chart its own course. Advocates of stem cell research put together a ballot initiative -- Proposition 71 -- that will provide an average of $295 million a year over the next decade to fund research at California's universities and labs. In November, Prop 71 passed, 59% to 41%.

The campaign was an interesting one. In addition to celebrities such as Michael J. Fox, Brad Pitt, and the late Christopher Reeve, many members of California's business community backed Prop 71. One of the largest financial supporters was a Fresno home developer whose son has juvenile diabetes. Some venture capitalists and Hollywood moguls also donated heavily in hopes of stimulating medical breakthroughs.

But other business leaders supported Prop 71 because they believed that stem cell research was, economically speaking, sure to pay off. Plowing billions into research and development simply has to stimulate the state's economy, they argue, especially given that California will have something of a monopoly, unless Bush's directive is rescinded. "All research is good for the future," explains Tim Draper, of the highly regarded Menlo Park venture capital firm Draper Fisher Jurvetson. "I'd like it if they would research cloning and everything else, but stem cells at the least."

UC-Irvine's Keirstead joins Draper in believing that the ballot measure could provide the state with a windfall. Of course, it's in his enlightened self-interest to drum up support because his lab stands to be one of the beneficiaries of Prop 71 grant money.

Still, as Keirstead points out, Prop 71's economic impact will be felt in many ways. Much of the initial funding, for example, will be earmarked for lab construction and equipment, which will generate revenue for California companies and send sales tax money to Sacramento. Beyond that, stem cell research could foster other medical technologies because stem cells can be used to create disease cultures for drug testing. Today, if a researcher wants to test a new drug on, say, a cancer cell, he or she must obtain one from a patient or buy a cancer line. But using stem cells, researchers can explore their own disease-related genes quicker and cheaper.

"It's so typically Californian to just go around the federal government," Keirstead says.

Most profoundly, however, Keirstead believes that by becoming an international center of stem cell research, California will attract top scientific talent. These scientists will be able to use Prop 71 grants to fund their R&D. And as their work progresses, they can raise capital from the state's indigenous VC community to help commercialize the therapies they invent. "It's so typically Californian to just go around the federal government and do it 10 times bigger," he says.

Keirstead, who likes to call himself a "scientific entrepreneur," is unusual in that he takes an active role in shepherding his research from lab to market. In addition to his choice academic post, the 37-year-old biologist -- who moved from his native Canada to California in 2000 -- has been CEO of two private companies built upon his patents. He's interested in business, he says, because the financial demands of running a company tend to expedite the research process.

Keirstead now plans to build a series of private "bridge" companies to develop intellectual property, which he will ultimately sell to big pharmaceutical companies. He did just that as CEO of Ability Biomedical, which he co-founded with Thomas Lane, who developed treatments to help regenerate nervous system functionality. UC-Irvine owns the patents to the therapies, so Keirstead negotiated an exclusive license with the school, then raised $1.5 million from VCs to further develop the technology. When the therapy was almost ready for clinical trials, Keirstead partnered with biotech heavyweight Medarex to take it from there. Medarex eventually bought Ability (and the licenses) for nearly $9 million; the human trials are scheduled to begin soon.

Keirstead's approach shows promise, although Yad Garcha, the Vancouver VC who backed Ability, felt the scientist overextended himself. Start-up CEOs shouldn't have "10 projects going at once," he says. Keirstead argues that it's fine to hop from venture to venture. Besides, he and Lane still get 33% from all license monies paid to UC-Irvine. Those who came to California seeking fortunes in decades gone by would understand.